TCS Daily

Thank You, Pew!

You've got to hand it to the PewCenter on Global Climate Change -- their timing is impeccable. Pew's latest big-splash report, U.S. Energy Scenarios for the 21st Century,
hit congressional offices just as members began debating amendments to
the Senate energy bill (S. 14). What can policy makers, journalists,
and corporate CEOs -- Pew's primary audience -- learn from this report?
What policy conclusions should Senators draw from it? Read on.

Directing the PewCenter is former Clinton-Gore administration Kyoto Protocol negotiator Eileen Claussen, so it is hardly surprising that Energy Scenarios endorses the substance -- if not the details -- of the Kyoto treaty. Like many previous Pew publications, Energy Scenarios calls for mandatory caps on U.S. emissions of carbon dioxide (CO2). But this report contains an unexpected twist. It confirms what free-market analysts have said all along -- Kyoto
and its ilk are nothing more than energy rationing schemes, a license
for politicians and bureaucrats to restrict people's access to energy.

The report examines three scenarios -- possible future development paths -- of the U.S. energy supply system from 2000 through 2035, and the increase in carbon emissions under each scenario.

·In "Awash in Oil and Gas," U.S. consumers enjoy secure access to abundant supplies of oil, natural gas, and coal, at low prices.

·In
"Turbulent World," disruptions in foreign oil production, terrorism at
home, and global warming-triggered extreme weather events wreak havoc
on fuel prices, energy supply, and public confidence. This new and
protracted "energy crisis" prompts policy makers to fund a crash
program "on the scale of the Apollo 'moonshot,' to shift America from oil dependence to a hydrogen economy."

Assigning
probabilities to these scenarios would be a fool's errand, and the Pew
report's authors do not attempt to do so. However, that does not mean
all the scenarios are equally plausible.

For
many decades, hydrocarbon fuels have become cleaner, more abundant, and
more affordable. This simple fact makes "Awash in Oil and Gas" the most
plausible by far of the three Pew scenarios. Further, the other two
scenarios are based on questionable assumptions.

"Turbulent
World" assumes the correctness of the dubious theory of catastrophic
global warming. It also implies that U.S. military dominance, the
toppling of Saddam Hussein, and the War on Terror leave America no less
vulnerable to terrorism and the "oil weapon" than in the early 1970s,
when price and supply controls hobbled U.S. energy markets, the Soviet
bloc trained and harbored terrorists, and Moscow vied with Washington
for influence, allies, and military bases in the Middle East.

Even
more problematic, "Technology Triumphs" and "Turbulent World" assume
that political planners are wise enough to pick the technologies of the
future, and to steer private and public sector investments accordingly.

"Technology
Triumphs" is the least plausible scenario, because it postulates
decades of "strong economic growth" even though political
interventions, not market signals and incentives, direct the
development of U.S. energy supply systems.

Nonetheless,
Pew's scenarios are instructive, because they illustrate that
Kyoto-style caps on carbon emissions are incompatible with the energy
requirements of a modern economy.

In "Awash in Oil and Gas," market forces determine the U.S.
energy supply mix, and Americans are free to "consume whatever they can
afford to buy." In this hypothetical future, Persian Gulf countries
increase oil production for export, Russia and Mexico accelerate oil
field development, North American producers expand production from
Canadian oil sands, Canada and Mexico increase natural gas exports to
the United States, energy companies develop oil and gas resources in
Alaska and the Rocky Mountain West, coal maintains a key role in
electricity generation, the electron-fueled digital economy permeates
homes and offices, and gasoline-powered vehicles rule the roads.

Not coincidentally, the U.S. economy sustains "significant GDP growth." America is prosperous, mobile, and productive -- in no small part because of declining energy costs.

Thank you, Pew, for recognizing the vital contribution of affordable energy to prosperity and growth.

In this scenario, U.S.
carbon emissions grow more than 50 percent between 2000 and 2035, as we
might expect in a world "awash in oil and gas." What is surprising is
that U.S.
carbon emissions also grow substantially in the other scenarios,
notwithstanding multiple interventions by federal and state
policymakers to redirect the evolution of energy markets.

In "Technology Triumphs," state governments set "rigorous" efficiency standards for appliances, enact caps on CO2
emissions from power plants, and introduce more renewable portfolio
standards (policies requiring specified percentages of electricity to
come from wind, solar, and biomass technologies). States also enhance
electric power generation and transmission efficiencies through tax
preferences and other policies. Specifically, they promote investment
in "combined heat and power" (on-site electric generating units that
harness exhaust heat to support space and water heating, air
conditioning, and various industrial processes) and "distributed
generation" (small-scale units located at or near customer sites that
avoid energy losses incident to long-range transmission). States also
subsidize fuel cell research and effectively raise federal fuel economy
standards by requiring new cars, minivans, and light trucks to reduce
emissions of CO2 per mile traveled.

These
actions, combined with breakthroughs in solar photovoltaic
manufacturing and a shift in consumer preference from "sprawling" to
compact residential development, slow the growth of vehicle miles
traveled, expand markets for hybrid cars, accelerate power sector fuel
switching from coal to natural gas, and lay the building blocks of a
hydrogen economy.

"Technology Triumphs" is really a "Politics Triumphs" scenario, with state governments implementing nearly all of the Kyoto crowd's favorite "technology forcing" schemes to "green" U.S.
energy markets. For years we've heard that such measures are so
cost-effective that they would make Kyoto-style carbon reduction
targets almost painless to reach. Indeed, Clinton-Gore officials used
to say that Kyoto would make America more competitive by creating opportunities for U.S. firms to lead the world in exports of energy-efficiency, renewable-energy, and emission-control technologies.

But
the Pew report inadvertently pours cold water on such statist
techno-fantasies. In the "Technology Triumphs" scenario, U.S. carbon
emissions "rise 15 percent above the year 2000 levels by 2035" -- about
35 percent above the U.S. Kyoto target -- despite multi-state
regulation of CO2 emissions from vehicles and power plants,
mature markets for hybrid cars, widespread efficiency upgrades in the
power sector, a successful launch of the hydrogen economy, and the
proliferation of "energy smart" communities and houses.

What
does this all mean? The Pew report gets one thing right: "In the
absence of a mandatory carbon cap, none of the base case scenarios
examined in this study achieves a reduction in U.S.
carbon dioxide emissions by 2035 relative to current levels." And it
emphasizes: "This is true even in the scenario with the most optimistic
assumptions about the future cost and performance of energy
technologies."

In
other words, there are no magic technologies just around the corner
that could simultaneously reduce carbon emissions and meet the energy
requirements of a modern economy. To reduce emissions, the report's
authors argue, it is necessary to enact "a mandatory carbon cap." It is
necessary to make energy scarcer and less affordable. It is necessary
to ration energy.

Thank you, Pew, for demystifying the debate over Kyoto
and cap-and-trade. Clearly, what the Pew Center on Global Climate
Change and other members of the environmental establishment want is
energy rationing -- a world in which governments control and restrict
their peoples' access to energy.